Was Amazon scamming or searching for its HQ2 location?

Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

If by announcing a search for a second headquarters Amazon.com intended to play one city against another and generate millions of dollars in free publicity, it has worked. Many observers believe Amazon has long known where it wants to be — or at least has never seriously considered more than two or three specific sites — since there are no more than a handful of cities that fit the requisite criteria.

What matters to Amazon are many of the same things that matter to many other companies.

“For most businesses, the issue of location choice now is driven by labor: Will we be able to attract the white collar skills we need?” said Peter Cappelli, director of Wharton’s School’s Center for Human Resources. “For unskilled or semi-skilled jobs, will we be able to get it at a price we want to pay? No business goes to the Silicon Valley or New York City because it is cheap; they go because of the labor supply.”

“It boils down to access to clients, access to labor force, access to suppliers — these all play a role in these decisions,” said Christopher Thornberg, founding partner of Beacon Economics.

The proposal says Amazon has a preference for metropolitan areas with more than one million people, a “stable and business-friendly environment,” urban or suburban locations with the potential to attract and retain strong technical talent, communities that think “big and creatively” when considering locations and real estate options.

Amazon has also made no secret of the fact that part of this exercise is about getting as much as it can in tax breaks and other incentives from the winning city.

Prof. Cappelli said businesses also often explore to what extent local and state governments can influence issues such as infrastructure and worker training. He said, “It is certainly true that business sees local governments at the final stage as a kind of vendor, and they are not above playing coy, pretending that they have more options than they actually see, and playing them off against each other.”

I’m of the school that Amazon had two or three destinations in mind prior to launching their RFP. Maybe they were open to other places that would “give away the store” to them in incentives if an amazing deal came along, but I do not believe this was a true open competition.

Regardless if I’m right or wrong, a cadre of cities invested an aggregate many thousands of hours working on proposals and dreaming. That energy definitely transferred to the local citizenry, spinning some brand magic for the company. Unless it comes out in the future that their choice of destination was predetermined and all the hoop jumping was for naught, the goodwill and potential additional incentives from their city of choice is all Amazon upside.

Amazon’s considerations should be minimally different from other tech companies seeking a location for a headquarters: a skilled workforce, a compelling city for employees, tax benefits and accessibility. Most of Amazon’s moves are done through a publicity lens, and this is no different. Good for Amazon for getting the hype machine rolling.

As an Amazon shareholder, I like the headquarters sweepstakes since it will shake out the most benefits for the company. As the resident of a town under consideration for the location, I dread the giveaways that are required to woo the retail giant. Amazon needs what they specified in their RFP: land, a skilled population, access to a transportation hub and infrastructure. They also need something equally important that went unsaid; a compliant local government.

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Phil ChangRetail Influencer, Speaker and Consultant

1 year 10 months ago

Max, well said. I’m based in Toronto and we’re in the Amazon running but I dread what we’re “giving away” to get them.

Key issues for any corporate expansion are access to people, a stable corporate operating environment and costs of ongoing operations. Amazon will be most challenged in the human resources area as this is their critical success factor moving forward. They have generated wonderful publicity from expansion plans, from which other corporations could take a lesson. The dialogue that this has developed is fruitful to advancing the understanding of the relationship between corporations, political jurisdictions, taxation (i.e. contributions to society’s operations and betterment), human resource availability and mobility, supplier industry development and market access/service.

God, I am getting tired of all the free PR and advertising Amazon gets. It’s simply not fair to the rest of the industry. How many companies get a free front page ad announcing price drops on 44 items? How many companies actually suggest they can deliver right inside your home with a straight face and find it reported on as something real? How many companies talk about drones and get 15 minutes out of 60 Minutes the night before Cyber Monday?

Sometimes I think PT Barnum was right. To paraphrase, we are a nation of suckers.

Fair? When has business ever been based on fairness to all? Unless some payola scheme surfaces (I don’t see it) Amazon is simply better at leveraging or manipulating the same tools/media that any other company or personality has access to. In general, regarding Amazon, I find the press and many pundits to be lazy and over-enamored with the company, which is the real statement on today’s society.

I agree with everything above. One thing that goes unnoticed but can have a big impact is public/private transit. Boston and New York have a great public transit system that enables you to get whereever you want in the city. Google and LinkedIn run private buses for their employees equipped with Wi-Fi in Silicon Valley.

Some cities on Business Insider’s “Top Ten Cities to Land Amazon’s Second HQ” list already have traffic issues and poor public transit. Bringing a headquarters that’s scoped to have 50,000 jobs is just going to fuel the traffic fire. This is unless the cities can come up with a new plan of action and we all know Amazon loves innovation.

I’ve never been a fan of the sweepstakes as it feels like a lot of wasted work but I imagine it allows Amazon and other companies to protect their selection and avoid court hearings dealing with corruption and favoritism.

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Phil ChangRetail Influencer, Speaker and Consultant

1 year 10 months ago

I think that expanding your horizons and allowing dark horses to compete is a good thing. I think that the “competition” for their second headquarters would have happened anyways, but instead of through lobby groups and back room channels this one was done in the open. I, for one, prefer this method.

I also think that Amazon probably already had a top three choice of cities in mind already. Any reasonable business would have this mapped out — would Amazon not?

Talented human capital seems to be the theme of every search right now for companies. I think Amazon is centered around the same thing. The city that wins has to have a good core of talent they can leverage and a great living environment that would be an easy sell for anyone moving to work at Amazon.

I believe Amazon had a general idea of the area they wanted to be in, i.e.: East Coast or Midwest. But I don’t think they were set on a specific location. Certainly close to Washington DC would make sense since Bezos owns the Washington Post and owns a home there. New York makes sense because fashion is a huge initiative for Amazon.

The Mid-Atlantic to Northeast makes the most sense because of the technology corridor from northern Virginia to Boston with access to innovation and talent. But to know what the considerations should be would assume you know Bezos’s long-term strategy.

There are several areas that could work for what we do know about Amazon. Having cities compete is not a bad thing. It happens all the time with other industries. We just don’t hear about it as much because they are not as visible as Amazon.

Amazon more than likely had a short list of targeted cities based on the skilled workforce concentrations, near technology, innovation-focused universities and a cosmopolitan area that is accessible, with a vibrant economy.

The sweepstakes nature of the search certainly helped drive the public relations momentum and build good will for the company. Also, considering the potential economic benefits for the winning city, the investment of time they have put into these proposals has really been impressive.

If Amazon already had a small number of cities in mind, it now has bids from hundreds of locations that allow it to negotiate the best possible deal with its original shortlist — tax incentives, infrastructure improvements and so forth.

Maybe Amazon will make a choice outside the box, but the reality is that they need to locate in a big market with easy access to the kind of intellectual capital that their hiring goals demand.

Location shopping has always been a smart strategy, especially if you have the clout and scale of Amazon. Competition is almost always the catalyst for a good deal. It remains to be seen how Amazon will disperse its leadership and functions among two headquarters but I have to believe that the second headquarters will be in a metropolitan area that is attractive to recruit upscale, young talent (sorry Duluth), has a much lower tax burden than Seattle and is logistically accessible to suppliers (a convenient to a hub airport and inter-state travel). It will also be important that Amazon have the ability to grow the size of their campus over time. Once the second headquarters is up a running, who is to say that they won’t consolidate both offices there, leaving behind the high rent district of Seattle as they begin to deal with minimizing administration expenses to remain cost competitive with Walmart and others? With that said, I would think areas like Atlanta and Charlotte would be good candidates, but certainly other growth-centric towns… Read more »

Like those that came be for me, I believe Amazon had a short list. The sweepstakes was a way to generate publicity and wring out extra concessions from the chosen few. The process was, to quote Macbeth, “full of sound and fury, signifying nothing.”

I assume that Amazon prompted this bidding war to gain tax concessions and development funding, pure and simple. Any city that engages in the bidding war and wins has really just denied itself tax revenue and spent development money on top of that. The only questions are, how much employment will Amazon provide the host city and will the workers and executives be locally recruited or brought in from the outside? Caveat emptor should be the guiding principle.

As Paula said, this whole thing generated a lot of free PR for Amazon, and certainly put a lot of cities through a lot of hoops, all but one for naught. As a south Florida resident on the east coast, I hope we don’t get it. Every time we’re in a boom economy, like now, more of our natural areas get built on and/or paved over. What’s happening in Miami-Dade, Broward, and Palm Beach counties is great for the economy, but really bad for the environment and traffic. At some point, we’ll have to get smarter and figure out how to repurpose abandoned areas instead of ruining pristine ones. What does this have to do with Amazon? 1. With their second headquarters they have a chance to build in a sustainable fashion and set an example for other large developments. 2. They have the opportunity to work with the chosen community to make sure they don’t degrade it just because its leaders were desperate for more tax revenue instead of a better quality of life… Read more »

I think that the number one consideration will be talent. I may be biased, but I can’t imagine HQ2 being anywhere outside of the Metro Boston area. There’s Harvard, MIT, Wayfair, Shoebuy, etc. and more foundational/enabling technology companies than you can imagine. I do think they would have a negative impact on the talent available to the Boston startup community in the near-term to medium-term, and generally drive up the cost of talent for most Boston-based firms, no matter the industry. I’m OK with the approach. Many companies operate similar bid processes; Amazon just gets a lot more attention given their dominance.

It’s almost certain that Amazon entered this with their own criteria/agenda, and it wouldn’t surprise me if HQ2 was also planted in Washington State in the end. It might come down to weighing incentives versus the talent pool, which could put New York and San Francisco in the running, but somehow I see Seattle operations expanding. The sweepstakes approach is clever as its free PR and, at this time of year, well played.

If a frenzy was created, I believe it wasn’t because of Amazon. It was the media. Nobody is wrong here. If Amazon was looking at two or three locations, the media shared the story and other cities decided to throw their name into the hat. It garnered a lot of publicity. I’m sure the PR team at Amazon knew this was likely, but I highly doubt that Amazon purposely created a media campaign over this. Here’s the bottom line. There will only be one winner. Does that mean the citizens of the “losing cities” will be so upset that they boycott Amazon? I highly doubt it. Amazon is one of the most, if not the most, customer focused companies on the planet. They owe it to their customers and shareholders to get the best deal that ensures they continue to innovate and keep prices competitive. They will be smart and strategic as they choose their next location. (By the way, if Mr. Bezos is reading this … St. Louis could use you — and you… Read more »

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Doug GarnettPresident, Protonik

1 year 10 months ago

I wondered from the beginning why Amazon would choose their stated search — almost everything about a process like they announced stands in the way of making good decisions. And one of my conclusions was that it might be a misdirection, especially because during the process they announced distribution expansions in various cities around the country.

Was it a process to force the top choices they’d already identified to dig deeper for tax breaks? Possibly. Was it for PR value? Only as an added bonus (my hunch).

There is a possibility they are wanting to look more a fairly operating part of society after a variety of bad publicity about employee treatment. So rather than dictate their desires they opened up a “fair” process.

But my bottom line? Nothing really adds up … yet. As with other Amazon efforts, time will reveal what was really going on.

Ever pitch the IOC for the Olympics? This is very similar. It can be a very compelling exercise in civic pride and of course there is the risk of let down. However, the self awareness a city gains from the experience is also rewarding. So I am a fan.

Bezos is a master brand builder. He fully understands paid, earned and owned media. At this time, Amazon is a hot brand. Once upon a time, Sears was too. When we created the Sears Collegiate Champions program (think: crystal trophies), USA Today requested that we tone down our investment so as to placate other advertisers. We reduced paid but kept rolling with earned and owned. That lasted a couple of years.

If a (soon-to-be) 16-year old asks for a Ferrari for their birthday, are they “scamming”? No: whether or not they get it depends of course on who their parents are, but it never hurts to ask; much could be said of Amazon.

Am I a fan? Am I a fan of cities being involved in a race-to-the-bottom to subsidize businesses? As a business (owner) I suppose I might be, but as a citizen I am 101% against it.

Business incentives and the labor force. The business incentives will provide longer term financial viability to the very large investment Amazon will be making in the buildings, people and the community. I agree with the author that quality of the labor force is key to getting the right talent to run the business properly. At a second headquarters, Amazon will need many kinds of skills, and the chosen community must be able to attract and maintain people with a wide range of skills.

I think the sweepstakes is a good process to bring out the best in each city’s creativity and offer to Amazon. For Amazon, this is a much better process than going to each city over along period of time.